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September 14, 2012

7 Businesses Saved From the Brink of Bankruptcy

Keeping a company on top for decades is tough; turning it around is even harder. And, are they good bets for your portfolio?

From hero to zero and back to hero again.

Companies come and go, but it’s always a bit of a shock to see an iconic business go bankrupt. Despite the shock, it’s not as uncommon as one might think.

An IBM ad in 2011 noted that of the top 25 industrial corporations in the America of 1900, only two survived to the 1960s. Of the top 25 on the Fortune 500 list in 1961, just six remain.

Those statistics show just how tough it is to keep a businesses going through lean times and changes in the way we live. Even more remarkable might be taking a business that is looking at the abyss of bankruptcy and bringing it back to profitability.

Most that are saved seem to owe their rescue to a combination of stern measures and strategic vision. Some, like the Detroit automakers and the insurance giant AIG, probably wouldn’t have survived without government help.

In any case, the tales are interesting, and after the big turnaround investors are left to ponder if the remade companies are worth investing in. Here’s our look at 7 Businesses Saved From the Brink of Bankruptcy.

AIG

The Tale: This is the bailout that made everyone but a bank hold their nose. As The New York Times reported this month, not long ago the idea that taxpayers would turn a profit from the rescue of the insurance giant seemed impossible to contemplate. But including the $20.7 billion in proceeds from the Tresury's recent share sale, the Treasury and Federal Reserve have made $197.4 billion from the taxpayers' $182.3 billion investment. One inspector general quibbles with the accounting, but there seems no doubt saving a “too big to fail” financial giant worked out in strict financial terms.

To Buy or Not to Buy: AIG is trading at about $35 a share, within pennies of its 52-week high and well above its low over that period. Investor Place looked at the pros and cons of AIG’s fundamentals. The company has shown a profit the last three quarters, but the jury is still out on how successful its restructuring will be.

AUTOMAKERS

The Tale: The rise, precipitous fall and ongoing rise again of the U.S. auto industry is a well-told story, but gets no less amazing in being repeated. GM and Chrysler, of course, were forced into bankruptcy, while Ford managed to restructure without filing for Chapter 11.

Three years after the government bailed out the industry, the wisdom behind the move seems obvious. Still, as sales figures have risen for the Big Three (and their competitors), the stock prices of two of them have fallen, a situation mainly ascribed to the troubles besetting the European economy. Ford ($10 per share, about $3 off its 52-week high) and GM ($23.25, about $4 off its 52-week high), might be considered a bargain. Chrysler, owned by Fiat, is cheap at about 4.54 euros ($5.83), although close to its 52-week high.

To Buy or Not to Buy: The experts are split. Some analysts see a good opportunity to buy stocks with a low price and a high P/E ratio. Others, despite the increase in sales, say investors should wait before betting on auto stocks.

APPLE

The Tale: Apple, of course, is the most valuable company in history, with a market capitalization of more than $630 billion. The company famous for its cool, easy-to-use computers fell on hard times. In 1997, Steve Jobs came back to the company he had co-founded to try to save it. Apple had been suffering, posting a dozen years of losses. Jobs, of course, turned the company around with a string of iconic products from the iPod to the iPhone and the iPad. Jobs died last October but the company hasn’t missed a beat, releasing the iPhone 5 this month. It’s up to new management to try to keep Jobs’ juggernaut going.

To Buy or Not to Buy: Since Jobs retired in the summer of 2011, Apple’s stock price has jumped from $397 a share to about $670. According to Michael Arold, writing on nasdaq.com, Apple’s stock rises and falls in a discernible pattern. His advice is to buy when rumors about a new device or upgrade start and sell when the news becomes official.

INTERPUBLIC GROUP

The Tale: The Interpublic Group, which traces its lineage in advertising to the 19th century, fell on hard times starting in 2002. As The New York Times recounted, problems included “accounting irregularities, restatements of financial results and an investigation by the Securities and Exchange Commission that ended with the payment of a civil penalty of $12 million.” The Times noted that the problems had a silver lining of sorts. Interpublic became more conservative in its operations and was able to weather the economic meltdown of 2008 better than many other companies.

To Buy or Not to Buy: After 2006, Interpublic’s stock dipped to as low as $2.61 per share and is currently just over $11, off a 52-week high of $12.17. The Street Ratings rates the company’s stock as a buy.

IBM

The Tale: In 1993, the iconic, pioneering computer company seemed headed for the history books, a casualty of competitors like Microsoft, Dell and others who changed the industry. The fall had been swift after $6 billion in profits in 1990.

To get back on course, the company first decided to split into separate divisions based on product type. But a change in course by Louis Gerstner, the new chairman and CEO, scrapped that idea. Instead, IBM was set on a course to cut costs and change the culture of the company, fostering a team approach. Under Gerstner, the company was again profitable by 1995.

To Buy or Not to Buy: Currently trading at about $200 a share, IBM has been on the rise. Its 52-week low is $158.76. One barometer of its status as a good buy can be deduced from Warren Buffet’s putting more than $10 billion into IBM stock last November. TheStreet.com rated IBM still a strong buy in July, giving it a rating of A-. It cited earnings per share, increase in net worth and good cash flow as among the reasons.

XEROX

The Tale: Xerox was so iconic that its name became synonymous with its product: the copy machine. No matter the brand of machine used, it was commonplace to call the output a xerox. From 1938 until the 1990s, Xerox was king of the copier world.

Sales fell as competition, e-mail and other new technology took its toll. The company was teetering on the edge of bankruptcy in 2000. Under the guidance of CEO Anne Mulcahy, the company ignored calls to declare bankruptcy and took the tougher road to a turnaround. Measures she employed included cutting 28,000 jobs and trimming billions in costs while diversifying and mainataining spending on research and delvelopment. The measures worked, and Xerox was back from the brink within a year.

To Buy or Not to Buy: Xerox stock current trades at about $7.80, in the middle of its 52-week high and low. Profit was down in the second quarter of the year. The company blamed the slow economy, especially in Europe, for the decrease. Investorplace.com looked at the stock in April, and found analysts pleased with the company’s efforts to diversify its business to include the providing of services along with selling copiers. They noted the company’s strong cash flow and that it has $1.8 billion in cash on hand. One analyst quoted on Value Line was bullish on Xerox.

SIZZLER

The Tale: In the early 1990s, there seemed to be a Sizzler on every corner. In fact, the steakhouse chain had hundreds of restaurants and sales of more than a billion dollars before things went wrong. In 1996, the company filed for Chapter 11 bankruptcy and the end seemed very near. But a new CEO, Kerry Kramp, a revamped menu and 16 years later the chain is in the black with 170 stores and annual sales of $300 million.

To Buy or Not to Buy: Worldwide Restaurant Concepts, which owns Sizzler, Bennigan’s and other eateries, is privately held. Still, if you want to put in a little elbow grease with your money, you could apply for a franchise.